Fed’s Lockhart Says Bar High for Not Hiking Rates Next Month

(Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart signaled the U.S. central bank was on track to raise interest rates next month, provided nothing intervened to give policy makers “pause.”

“There's a relatively high bar, at least in pure economic terms, a relatively high bar to not moving in December,” Lockhart told reporters Friday in Orlando, Florida. “There are other things that go on in the world that could give pause and I don't completely rule them out,” he said, without providing specifics.

The Federal Open Market Committee is scheduled to met Dec. 13-14 in Washington. Investor expectations for a rate hike next month were bolstered after the FOMC said Wednesday the case for an increase had continued to strengthen, after opting to leave the target range for its policy benchmark unchanged at 0.25 percent to 0.5 percent.

That decision had been widely anticipated ahead of the Nov. 8 U.S. presidential election, which is looming as a potential source of financial market instability after polls showed a close race between Republican Donald Trump and Democrat Hillary Clinton.

Lockhart said earlier in Orlando that he expected rates to rise “very gradually” over the next two years. Fed officials expect to lift rates once this year, twice in 2017 and three times in 2018, according to the median estimate of their quarterly projections in September.

December Hike

Confidence in a Fed rate increase next month was supported by the October U.S. employment report, released by the Labor Department Friday, that showed the unemployment rate dipping to 4.9 percent and hourly earnings edging higher.

Lockhart noted, however, that the report confirmed his belief that labor market conditions were not drawing more Americans into the workforce. The labor force participation rate dropped in October as the number of people leaving the work force rose.

Lockhart, who retires in February after 10 years at the helm of the Atlanta Fed, said he was “ambivalent” on the idea of pushing unemployment well below what's viewed as its lowest sustainable level. He is not a voter on the FOMC this year.

“I would be open to some of what you might call running the economy hot if you were talking about a relatively mild form of that idea that is not really risking undesired inflation rising rapidly,” he said.

Fed Chair Janet Yellen, in an October speech, pondered whether running a “high-pressure” economy might help draw more people back into the workforce.

To contact the reporter on this story: Christopher Condon in Washington at ccondon4@bloomberg.net. To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull